The role of the state and development

1. The role of the state and development • Intro. • State before and after Washington Consensus • New Consensus • Recent theories of Development policy formation, including the studies of the impact of political process on the quality of policy decisions • We will also examine the important trends in Governance and reforms, tackling the problem of corruption, implementing decentralization and encouraging broad based participation in Development.

2. The role of the state and development • State and Development and Planning • According to MP Todaro, Economic planning is defined as deliberate attempt to coordinate economic decision making over the long run and to influence, direct and in some cases, even control the level and growth of nations.

3. The role of the state and development • Economic Plan : is simply a specific set of quantitative economic targets to be reached in given period of time, with a stated strategy for achieving those targets. • There are two types of economic plan: • Comprehensive Plan sets its targets to cover all major aspects of the national economy. • Partial Plan covers only a part of the national economy – industry, agriculture, the public sector, the foreign sector and so forth. • Planning process itself can be described as an exercise in which a government first chooses social objectives, then sets various targets, and finally organizes a framework for implementing, coordinating and monitoring a development plan.

4. The role of the state and development • Planning in mixed economy. • Such economies are characterized by the existence of institutional setting in which some of the productive resources are privately owned and operated and some are controlled by the public sector under state control.

5. The role of the state and development • Failure of Government • Use of market mechanism was seen as key instrument for promoting greater efficiency and more rapid economic growth. • Ronal Reagan, the US president called it Magic of Market place at Cancun in 1984. Margret Thatcher called it there is no alternative (TINA) for market economy under neoliberalism. • In development literature, 1970’s is described as period of increased public sector activity • 198’s faced great shift from public sector to free market economy.

6. The role of the state and development • To sustain the free market economy, the mandate of IMF and World Bank changed • Growth of public sector - 15% to 25% GDP • Investment - 40% to 50% • Returns on public investment, in terms of GDP Growth declined due to following factors: • Poor investment decisions, delays in implementation, low capacity utilization and insufficient maintenance of public projects. • Price distortion is cited another factor for low GDP, according to World Bank

7. The role of the state and development • Market Economy - some preconditions. • Econmists like Nathan akeyfitz and Robert Dorfman have listed following institutional and cultural requirements for the operation of effective private markets. • Trust (in banks insurance companies, suppliers, etc) • Law and order (enforcement of contracts) • Security of person and of property • Balancing competitions with cooperation (for a safe workplace and cleaner environment) • Division of responsibility and diffusion of powr ( an independent judiciary)

8. The role of the state and development • Community altruism ( s social safety net for the impaired, chrononically unemployed, elderly and etc. • Social mobility, legitimation of ambition and toleration of competitiveness Materialistic values as a stimulus to greater production • Honesty in government. • Efficient form of competition, as opposed to monopolistic control • Freedom of Information (along with protection of privacy) • Flows of information without restriction or favoritism

9. The role of the state and development • Role and limitation of Market in LDC • Imperfections • Lack of information about the size of market • Presence of uncertainty • Low investment in health and education • Capital formation • Distribution of resources

10. The role of the state and development • Emergence of Washington Consensus. • Fiscal discipline • Tax reforms • Unified and competitive exchange rate • Secure property rights • Deregulation • Trade liberalization • Privatization • Elimination of barriers to direct foreign investment (FDI) • Financial liberalization • Withdrawal of Subsidy • Austerity measures – cutting expenditure and downsizing

11. The role of the state and development • Emergence of Santiago Consensus 1998 • Development must be market based but there large market failures that cannot be ignored. • Government should not be in the business of direct production, as a general rule • But, there is a broad, electic role for government in : • Providing a stable macro environment , infrastructure, though in fewer sectors than though necessary in the past • Public health • Education and training • Technology transfer

12. The role of the state and development • Ensuring environmentally sustainable development, ecological protection • Providing export incentives. • Helping the private sector to overcome coordinating failures • Ensuring ‘shared growth’, acting to reduce poverty and inequality and ensure that the continued if more moderate regulation and support in financial sectors • Provision of fundamental public goods, such as legal structure, including the protection of property rights.

13. The role of the state and development • Political Economy Development: Theories of policy formulation • Neoliberalism • Neo Marxism • Structuralism or Mixed Economy.

14. The role of the state and development • Democracy VS Dictatorship • Governance and reforms • Tackling the issue of corruption • Decentralization • Development participation.

15. The role of the state and development • Conclusion